Maximizing Treasury Management Profitability

Maximizing treasury management profitability is essential in today’s competitive environment. One area that often goes unnoticed is the practice of waiving fees or offering special pricing on treasury management (TM) services. These practices can significantly impact your bottom line if not managed properly. Today we’ll explore key aspects to consider: identifying who is on waiver, understanding why, examining special pricing, and calculating the true cost of these practices.

Analyzing Waivers: Who and Why?

Identifying Waivers Start by conducting a thorough analysis of your business customer base to identify who is currently benefiting from fee waivers. Use your customer relationship management (CRM) system or core system to generate a list of treasury management customers on waivers. Look for patterns, such as customer size, lender, industry, or longevity with the bank.

Understanding the Reasons for Waivers Once you've identified these customers, the next step is understanding why they are on waiver. Are they strategic accounts with high potential for future revenue? Are they long-term customers with a history of substantial deposits or loans? Or are they smaller customers who negotiated waivers as a condition for opening their accounts? Categorizing these reasons helps you assess whether the waivers are justifiable or if they need reevaluation.

Special Pricing: Who Gets It and Why?

Identifying Special Pricing Recipients Similar to waivers, special pricing needs careful scrutiny. Identify which customers are receiving special pricing on TM services and the rationale behind it. Use your CRM and billing systems to extract this data.

Rationale for Special Pricing Evaluate the reasons behind the special pricing agreements. Are they based on volume discounts, competitive pressures, or promises of future business? Ensure that these reasons align with your overall strategic goals. For example, offering special pricing to attract a high-potential client in a lucrative industry might be justified, but blanket discounts to retain low-value customers may not be.

The Cost of Waivers and Special Pricing

Paying for Waivers and Special Pricing Every waiver or special pricing agreement has a cost, and this cost must be accounted for somewhere in your budget. Determine whether these costs are absorbed by the marketing or sales incentives budgets. It's crucial to trace the financial impact back to its source to understand the broader implications on your profitability.

Marketing and Sales Incentives Budgets If your waivers and special pricing are eating into your marketing or sales incentives budgets, consider the trade-offs. Are these concessions delivering a return on investment in the form of new business or customer retention? Or are they simply eroding your margins without significant benefits?

Understanding Your TM Services Costs

Vendor Costs and Labor Expenses A comprehensive understanding of your TM services costs is vital. This includes both the costs paid to vendors for providing these services and the internal labor costs associated with supporting them.

Start by reviewing your vendor agreements. Are there areas where you can negotiate better terms or find more cost-effective solutions? Additionally, analyze the time your team spends on supporting these services. This includes everything from customer support to account management and technical maintenance.

Calculating True Costs Only by knowing the true costs of your TM services can you make informed decisions about waivers and special pricing. If you don't have a clear picture of these costs, you might be waiving fees or offering discounts that are unsustainable in the long run.

Steps to Take

1. Conduct a Detailed Analysis
• Generate reports to identify all customers currently on waivers or special pricing.
• Categorize these customers based on the reasons for the concessions.
2. Evaluate the Rationale
• Assess whether the reasons for waivers and special pricing align with your strategic goals.
• Identify areas where these concessions might not be justified.
3. Calculate the True Cost
• Review vendor agreements and internal labor costs to determine the actual cost of your TM services.
• Trace the financial impact of waivers and special pricing on your budgets.
4. Adjust Strategies
• Where necessary, renegotiate terms with vendors or adjust internal processes to reduce costs.
• Reevaluate your waiver and special pricing policies to ensure they are sustainable and strategically sound.
5. Communicate with Your Team
• Ensure your sales (lending) and treasury management relationship managers understand the financial impact of waivers and special pricing.
• Train them on the importance of aligning these concessions with the bank's profitability goals.

By taking a strategic approach to managing waivers and special pricing, you can ensure that your bank remains profitable while still providing valuable services to your business customers. Conducting a thorough analysis, understanding your costs, and aligning your policies with your strategic goals are essential steps in this process of maximizing treasury management profitability. Remember, every dollar waived or discounted needs to be justified by a corresponding benefit to your bank. Only then can you ensure that your TM services are contributing positively to your bottom line.